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Business

Soft economies reduce Japanese megadeals

TOKYO -- Japanese companies grew hesitant about spending big on acquisitions in the first three months of 2016 amid heightened uncertainty in the global economy.

     Acquisitions involving Japanese players, including domestic realignment deals, totaled 3.47 trillion yen ($31.2 billion) for the period, down 34% from a year earlier, according to Tokyo-based consultancy Recof. The amount includes transactions to acquire overseas businesses, which tumbled 67% to 1.45 trillion yen.

     Japanese companies hit the brakes in other parts of Asia and Europe, with purchases in these regions plummeting 88% and 68%, respectively. With growth slowing in China and other emerging economies and deflationary concerns surfacing in Europe, corporate Japan is taking time in assessing growth potential and business synergies.

     "With growing awareness of the risk of impairment charges, corporate leaders are becoming cautious about megadeals," said Koichiro Doi at JPMorgan Securities Japan. This development follows unwelcome news of Kirin Holdings and Lixil Group incurring huge extraordinary losses tied to overseas subsidiaries.

     Only a handful of transactions were megadeals in the first quarter of 2016. The Nippon Telegraph and Telephone group is buying Dell's information technology services business for roughly 350 billion yen, and Asahi Group Holdings is taking on some operations of U.K.-based brewer SABMiller for about 330 billion yen.

     The value of acquisitions of Japanese companies by foreign buyers increased, lifted by the mega-buyout of Sharp by Taiwan's Hon Hai Precision Industry, also known as Foxconn.

     Acquisitions are slowing globally, dropping about 20% in the first quarter after hitting an all-time high in 2015, financial software company Dealogic said. Corporate Japan's presence in the global market is weakening. Japan was the No. 3 buyer in cross-border deals for the first quarter of 2015, but slid to fifth in the latest period.

     However, Japanese companies inked 24% more transactions than a year earlier, indicating they are spending less on each deal. With the Japanese market shrinking, businesses here remain eager to obtain an income source overseas in the medium to long term.

     "Food producers and others that do business mostly in Japan may go look for megadeals abroad again" starting this month, said Shinsuke Tsunoda at Nomura Securities.

(Nikkei)

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